Two CMBS transactions recently priced with long-term super-senior AAA-rated bonds pricing at levels not seen since mid-2015. The first deal, a $1.3-billion offering by Citigroup and Deutsche Bank, priced the super-senior CMBS at 90 basis points (bp) over swaps, down 24 bp from the average of December’s CMBS issues. The pricing also broke the 100 bp barrier for the first time since mid-2015, with the exception of one very high-quality offering last August. The balance of the investment-grade structure of the CMBS bonds fared very well also. The BBB- bonds priced at 380 bp, down sharply from the range of 565-575 bp in December. Traders noted lack of new supply and confidence that new risk-retention rules will result in higher quality CMBS issues as reasons for the tight pricing.
Following the Citigroup/Deutsche Bank deal, Morgan Stanley, Bank of America and Wells Fargo priced a $977-million CMBS offering at tighter levels. The issuers priced the super-senior CMBS at 88 bp over swaps and the BBB- bonds priced at 350 bp, 30 bp better than the Citigroup/Deutsche Bank deal. However, the Morgan Stanley deal featured better credit metrics than the Citi deal, and the Morgan Stanley trio is becoming known as issuing the highest quality CMBS, which may have factored into better pricing.
“With these deals establishing new pricing levels, borrower spreads have fallen roughly 15-25 bp, well under 300 bp. With the 10-year Treasury yield roughly 2.45%, rates to borrowers are close to the important 5% level for full-leverage transactions and sub-5% for lower leverage deals,” commented Michael D. Sneden, Executive Vice President at ValueXpress.